Netflix's Hastings says he won't retreat in SEC Facebook-post case

Netflix (NFLX) Chief Executive Officer Reed Hastings said he will keep posting on Facebook as the U.S. Securities and Exchange Commission weighs whether to file a lawsuit over a disclosure he made on the social network.

"I wasn't setting out to set an example. I was sharing something to these 200,000 people," Hastings said today in an interview at Bloomberg's New York headquarters. "I'm not going to back down and say it's inappropriate. I think it's perfectly fine. Sometimes you're just the example that triggers the debate."

Reed Hastings, CEO of Netflix, speaks during a panel discussion at the President's Council on Jobs and Competitiveness held at VMware in Palo Alto on Aug. 2, 2011. (Gary Reyes / Mercury News)
(Gary Reyes)

Hastings, 52, stirred controversy over SEC disclosure rules when he wrote in a July 3 Facebook post that viewing on Netflix's video-streaming service "exceeded 1 billion hours for the first time" in June.

In December, Hastings and Netflix each received a Wells Notice, indicating SEC staff had determined sufficient wrongdoing occurred to warrant a civil claim against Hastings and his Los Gatos-based streaming-video company for allegedly violating selective disclosure rules. The SEC is weighing whether to bring a case.

Advertisement

The incident, which could result in sanctions, has led to calls for the SEC to broaden its rules to allow social media such as Facebook and Twitter to be used to communicate to investors. Hastings said in December that posting to his Facebook contingent of 200,000 followers "is very public." He also argued that the information wasn't material, since the company had said on its blog several weeks earlier it was approaching 1 billion hours a month.

No Example

"Absolutely I am," Hastings said when asked today whether he'd post again on the social-media website. "Why not? It will sit before the commissioners for a while and then, at their leisure they'll consider it, which could be anytime over a year."

John Nester, a spokesman for the SEC, declined to comment.

Hastings, who sits on Facebook's board, pointed out that he disclosed the Wells Notice on Facebook. In that instance, the company also made a regulatory filing. He stopped short of saying he would post material information on Facebook without taking that additional step of a regulatory filing.

SEC staff determined that the July post violated Regulation Fair Disclosure, which requires public disclosure, such as through a press release on a widely disseminated news or wire service, or by "any other non-exclusionary method" that provides broad public access.

"Reg FD was about protecting me from telling Carl Icahn something special, the big investor, that not everyone else got," Hastings said. "This was me talking to 200,000 Facebook followers; it is letting the small guy in on the information."

Web 'Evolution'

Netflix has garnered support from former SEC commissioner Joe Grundfest, who filed an amicus brief on Jan. 30. The posting wasn't material or selective, and doesn't violate Reg FD, he wrote. Guidelines that allow companies to post material information on their websites but not on Facebook are outdated because they fail to account for "the evolution of social media," and should be addressed through rule-making, he said.

"It makes little or no sense" to take legal action against Netflix, wrote Grundfest, now a Stanford Law professor. "The proposed enforcement action is a questionable allocation of limited agency resources."